I'm Political Economy editor at Forbes, editor of RealClearMarkets.com, plus a senior economic advisor to Toreador Research & Trading. I have book on how the economy works, Popular Economics: What LeBron James, the Rolling Stones and Downton Abbey Can Teach You About Economics that is set for release in April of 2015. I have a weekly column on Mondays at Forbes.com.

Obama's Jobs Plan: He Should Have Stayed On Vacation

Back from a vacation that, with the economy’s health in mind, was cut well too short, our President has returned energized, ready once again to inflict ideology on the economy. Ever certain of his transformative skills, the President continues to miss the essential truth known to many of us, but totally lost on the political class. Specifically, Washington can’t create jobs, but it certainly can destroy them.

Lest we forget, our federal government has no resources. So while it can tax and borrow to pay for make-work programs, private production taxed by the government is what creates even the wasteful jobs that politicians take credit for. Also not considered is the unseen; as in how many more jobs would be created if monies confiscated were left in the private sector where investment must tilt toward capital appreciation, rather than capital destruction.

But eager to be seen “doing something”, an all-too-familiar response from self unaware politicians that has caused every recession going back to Pericles, Obama has new plans that he’ll carry out with the money of others. U.S. citizens should be scared.

First up is more federal spending in the form of federal monies meant to “modernize schools”, to rehab “vacant homes”, funds for states to “rehire teachers and first responders”, and surely others. If we can ignore the absurdity of rehabbing vacant homes at a time of a major housing glut, what about the waste?

And there lies the problem with federal spending. It doesn’t just detract dollar for dollar from private-sector initiatives as anti-stimulus advocates articulate so plainly and correctly, it also destroys capital. If private business concepts seek growth capital they must have a compelling plan for turning $100 into $1,000, whereas federal spending occurs under no such discipline.

It’s almost as though the more capital consumed as it reaches the pockets of others, the better. Who cares if the last thing private capital markets would ever fund is home rehabs, at least money is spent. Think about that for a moment, the idea that the whole basis for Obama’s spending plan is the proverbial “shovel-ready” project where capital is consumed, and then ask if such a concept could ever achieve funding in the private markets?

In the early part of the new millennium it was said that the Internet bust caused a recession for so many weak business concepts having improperly achieved funding that ultimately disappeared due to a high ”burn rate” among one-time Internet darlings. Much the same was said about a housing correction that occurred seven years later.

Fine, markets make mistakes corrected by investors, but does anyone ever bother to consider the ongoing and continuously funded recession that is the federal government? We always hear about the “pain” of federal spending cuts, but someday, someone, somewhere in power will note that government spending is the pain. At least Webvan was eventually starved of capital such that a bad concept couldn’t destroy any more of it. Can that be said for the Department of Energy, Education, or HUD?

After that, the whole notion of an infrastructure bank ignores what fellow Forbes contributor Wayne Crews observed last week. Put bluntly, we already have an “infrastructure bank”; as in we have the deepest, most intrepid and most aggressive capital markets in the world ready to fund good ideas that promise a return. In Obama’s case, he wants to use the infrastructure bank to fund the bad ideas that don’t promise a return, and that can’t attract capital from private investors. Hello Solyndra, again.

And then eager to get businesses to “create more jobs”, Obama proposes short-term tax cuts on payrolls to make it less expensive for employers to hire. A nice thought at first glance, but there are problems.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.